In presenting a well-argued and cogent argument for the updating of the national payment system, the author takes time to present the pervasiveness of monetary transactions throughout modern societies and how, taken as a whole, they can have profound effects when they fail to function. By outlining the wealth of touchpoints and the risks they simultaneously create and mitigate, we can better grasp the importance of maintain these unseen thoroughfares upon which our modern global financial system depends.
This is important because payment systems are exposed to various forms of risk. For instance, a payment may fail to settle because an institution is unable to fully meet its financial obligations when the payment is due or at any time in the future, thus posing credit risk. As we saw in the example of the bank with the computer glitch, operational risk can trigger gridlock in payment systems. Payments are also associated with liquidity risk, which arises because an institution may find itself temporarily short of funds to make a payment at the time needed. More broadly, because participants in certain payment systems are interconnected, systemic risk can arise when the inability of one institution to settle a payment produces a domino effect, or financial contagion, by triggering a similar inability at other institutions.
Mercator Advisory Group decided to call attention to this particular article as it its relative to the problems many see in our national infrastructure, which many Americans think is made up of our roads and bridges, and some also remember to include power, water, Air Traffic Control and Heavy and Light rail. This article reminds us all that the systems through which large scale and retail commerce takes place digitally requires a refresh as well and are indeed integral to the smooth functioning of the interconnected economies we live within.
Overview by Joseph Walent, Associate Director, Customer Interactions Advisory Service at Mercator Advisory Group
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